Global economic growth is sluggish, to say the least.
The low-growth environment the world seems to be trapped in, said Raman Srivastava, Standish Mellon Asset Management’s co-deputy chief investment officer and managing director of global fixed income, is probably not going to change anytime soon.
There is, however, one thing that could truly kickstart the global economy: fiscal stimulus.
The issue, Srivasatava said, is that no country wants to do it.
“What needs to happen is a coordinated fiscal response on a global scale in order to spur demand,” Srivasatava told Business Insider. “The problem is there isn’t a will to do it, which is why we don’t think [growth] rates or inflation is going anywhere.”
According to Srivasatava, central banks have attempted to kickstart growth with ever-lower (and now negative) interest rates and asset buying programs. But at this point those moves are no longer effective.
“The first venture into things like [quantitative easing] drew a powerful response from markets,” said Srivasatava. “So now there is no real reaction anymore. The markets is basically saying there is not much more they can do. Further rate cuts aren’t going to help, more fiscal stimulus is.”
In this scenario the stimulus would be a large infusion of cash from the government in the form of infrastructure development, public employment, and so on. This would drive employment, wage growth, and would make up for the demand gap in private sector expenditures.
The biggest thing standing in the way of this plan, said Srivasatava, is politics.
According to Srivasatava there just isn’t an appetite for a large, debt-financed stimulus package on a global scale, especially in the US.
“Look at the US, we’re in the middle of an election year, there’s not going to be an announcement of a giant stimulus package in this environment,” said Srivasatava. “We would really need something economically dramatic to happen before stimulus became possible.”
Srivasatava said that the current presidential candidates would have a “field day” if President Obama were to announce such a package. Outside of the US, Srivasatava said such stimulus is being treated as “a last resort.”
“I can’t imagine that Germany is open to a big budget deficit, and it’s hard to drive policy action in Europe without them,” said Srivasatava.
In an ideal world, there would be a coordinated effort across the major economies — similar to 2009 — that would drive demand higher and help grease the wheels of the economy.
But without the political will that just doesn’t seem like it’s going to happen.
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